Archive: State Pension Could Prompt Tax Increases

State Bill To Rise To $6 Billion

UPDATED 9:34 AM EDT Jul 02, 2010

HARRISBURG, Pa. -

This report was originally filed in June, 2010:

The time was just after the economic good days of the 1990s -- before subprime mortgage albatrosses and financial sector meltdowns -- and state lawmakers decided to increase the retirement benefits for current and retired state employees.

The bill for that consequential decision is coming due, and taxpayers will likely be asked to pay for it -- a $6 billion liability at a time when some school districts, municipalities and even the state government are cutting jobs to make ends meet.

"This is a cost that has to be funded through tax revenues, ultimately," said Robert Gentzel, communications director for the state Employees Retirement System.

Pensions are guaranteed for current and retired state employees. And while employees contribute part of their pay check, taxpayers contribute the rest, and that pool of money is invested.

The economic downturn, starting in 2007 and accelerating in 2008, brought poor investment returns to the state's pension system, meaning Pennsylvania is billions of dollars behind. And that revenue has to be made up somewhere, likely through tax increases.

"It makes the lawmakers' job in the next few years with revenues likely to lag that much harder," said Stephen Herzenberg, an economist with Keystone Research Center.

The state Legislature passed the pension increases in 2001 and 2002 but chose to delay paying for the increases for 10 years, meaning fiscal year 2011-12 is when the bill is due.

The liability for the state's two largest pension programs -- the state Employee Retirement System and the Public School Employees Retirement System -- will jump from $800 million to $6 billion.

"Anyone who is paying property taxes needs to be concerned about this issue," said Republican state Rep. Glen Grell.